Crude Futures Rise for Third Day as Inventories Decline Most in a Decade

By Moming Zhou -
Dec 21, 2011

Oil rose for a third day as U.S.
inventories declined the most in a decade.

Crude gained 1.5 percent after the Energy Department
reported supplies fell 10.6 million barrels to 323.6 million. It
was the largest decline since Feb. 16, 2001, and almost five
times the 2.13 million-barrel drop that was the median of 12
analyst estimates in a Bloomberg News survey. Oil also advanced
as imports slipped to a three-year low.

“This is a shocker and is going to be bullish for oil,”
said Rich Ilczyszyn, chief market strategist and founder of
Iitrader.com in Chicago. “This is definitely going to get some
of the bears scared out of the market in the short term.”

Crude oil for February delivery increased $1.43 to settle
at $98.67 a barrel on the New York Mercantile Exchange. Oil
traded at $98.17 before the release of the report at 10:30 a.m.
in Washington, then jumped to $99.25 before settling at a one-
week high. Prices have gained 8 percent this year.

Brent oil for February rose 98 cents, or 0.9 percent, to
settle $107.71 on the London-based ICE Futures Europe exchange.

Refiners are trying to reduce inventories this month to
minimize their taxes in Texas, Andy Lipow, president of Lipow
Oil Associates LLC in Houston, said in a telephone interview
before the report. Texas and Louisiana assess taxes based on the
fair-market value of inventories on Jan. 1.

“This is accomplished by increasing exports of product and
minimizing imports of crude oil,” Lipow said.

Refiners typically then rebuild stockpiles in January.

Gasoline, Distillates

Stockpiles at Cushing, Oklahoma, the delivery point for
Nymex oil futures, slid 990,000 barrels to 30.2 million, the
Energy Department report showed. Oil imports dropped to 7.58
million barrels a day, the lowest level since September 2008.

Oil also rose after the European Central Bank said it will
lend euro-area banks a record amount for three years. The
Frankfurt-based ECB awarded 489 billion euros ($645 billion) in
1,134-day loans today, the most ever in a single operation.

The lending is more than economists’ median estimate of 293
billion euros in a Bloomberg News survey. The ECB said 523 banks
asked for the funds, which will be lent at the average of its
benchmark interest rate, which is currently 1 percent, over the
period of the loans.

Equities, Dollar

Oil pared gains from the intraday high as U.S. equities
declined and the dollar strengthened against other currencies.

“The falling stocks are suppressing the impact of the 10
million-barrel drop in storage,” said James Williams, an
economist at WTRG Economics, an energy research firm in London,
Arkansas.

The Standard & Poor’s 500 Index (SPX) and the Dow Jones
Industrial Average declined as much as 0.9 percent before
erasing their losses by the end of the day. The Dollar Index,
which tracks the U.S. currency against six major peers including
the euro and the yen, increased as much as 0.3 percent. A
stronger dollar reduces oil’s appeal as an investment
alternative.

Oil volume in electronic trading on the Nymex was 378,514
contracts as of 3:38 p.m. in New York. Volume totaled 435,265
yesterday, 32 percent below the three-month average. Open
interest was 1.3 million contracts.